90% Of Fund Flows Missed The Stock Rally

According to Morningstar, 90% of new mutual fund money this year went into bond funds and missed 2009’s massive stock rally.

After last year’s $251 billion investor exodus from US open-end funds, through August 2009 $226.4 billion has re-entered them. Unfortunately, $209.1 billion of this went into taxable-bond and municipal-bond funds.

Bill Gross might have been a bit too successful in coaxing investors. As much as 10% of 2009’s new money might have gone into a single PIMCO fund, the PIMCO Total Return fund.

Fund My Mutual Fund: The Pimco fund “now holds a 13% share of the taxable-bond mutual fund market and weighs in at a whopping $177.5 billion in net assets,” Morningstar said. “At its current size, it is almost twice as large as the next-most-popular fund, Vanguard Total Stock Market Index Fund (VTSMX)

Sure, the fund is up 11% this year, but its investors missed one of the strongest stock rallies we’re likely to see any time soon. Expect these fund flows to switch back into stocks at just the wrong time. If anything, this data implies that the stock rally might still have legs.